What Palm Needs to Do to Bounce Back

The last few weeks have been dominated by speculation over two things: the Google Phone and the Apple tablet. One is now a reality. The other is still a myth. And beyond this twin-headed meme, attention has been paid to little else. Forgotten is the fact that BlackBerry is still outselling its rivals and its brand-new 9700 Bold (with touchpad) is arguably the best device the Canadian company has ever made. Also forgotten in the Google vs. Apple battle is a little company called Palm.

Palm Pre

Yesterday, I stopped using my Nexus One and resumed using my BlackBerry Bold. (Which explains why I’m once again returning emails and text messages in a timely manner.) I also looked again at the Palm Pre, which had been sitting at the bottom of the drawer, gathering dust. I couldn’t remember exactly why I had stopped using it — though it helped that AT&T’s mobile chief, Ralph de la Vega, today confirmed that Ma Bell was going to start selling the Pre and its younger brother, the Pixi, in 2010.

Verizon is going to start supporting the Pre as well. With Sprint already in the bag, it seems like Palm finally has the ability to address a big enough market. Of course, it also means the company can no longer claim it doesn’t have enough carrier partners. Helping it get to this point was the fact Palm’s main investor, Elevation Partners, has kept the faith.

In an interview with Bloomberg, Elevation co-founder Fred Anderson called its investment in the company a “marathon,” and said his firm “hasn’t taken money off the table because we see a huge market opportunity here.” Elevation has invested a total of $460 million in Palm since 2007 and has seen the stock grow threefold in 2009 alone. I admire these guys for keeping the faith.

After coming off my 10-day Nexus One stint, I realized that barring the iPhone OS, webOS, which powers Palm’s devices, is perhaps the most complete and polished operating environment available. It’s also far more elegant and seamless than either Nokia’s Maemo or Google’s Android. I guess that’s one of the reasons why there’s ongoing speculation that someone — Dell, Nokia or Microsoft — will buy Palm.

Maybe — and maybe not! In the meantime, the big question is: Can the company stage a comeback? I have not been shy about my feelings as to Palm’s increasing irrelevance, antagonizing Palm fans in the process. There were four basic challenges that were facing the company, in my opinion:

1. A weak brand.

2. A weak balance sheet.

3. Deep-pocketed competitors, including one with a massive customer base.

4. Being late to the market, thus giving it a weak app store.

What I liked about Palm:

1. Its developer community.

2. webOS.

3. Vertical integration of its hardware and software à la Apple.

Palm Pixi

Palm has had to face the challenges I outlined last year and has continued to struggle. And should the Palm fanboys get upset by that assessment, here is the company’s latest quarterly performance: In the second quarter of its fiscal 2010 period, the company shipped 787,000 smartphones, in line with what Wall Street was expecting — and down 5 percent from what it shipped during the first quarter of fiscal 2010. Which means that five months after it was launched, the Pre is already beginning to lose steam. And don’t forget that also during that fiscal 2010 second quarter, the company put the ultra-cheap Pixi on the market.

That’s why I still think the odds are against Palm. Still, I would give the company a one-in-five chance of being relevant in two years — as long as it does three things:

First, it needs to make its hardware less complex. It took playing around with the Pre again to remember why I had hated the device in the first place. While the team had done a good job of coming out with an attractive product — Droid makes it look like a work of art — the device’s user experience was stuck in a previous era, as evidenced by the multiple input options (keyboard/touch) and multiple buttons. So in fact, what I hated was Palm’s Handspring legacy. What the company needs to do is go back to the drawing board and come out with a simpler touchphone: no keyboards, no buttons, nothing.

Second, it needs to get its app ecosystem going. The single biggest asset Palm has is webOS. As such, it needs to drive home its web-friendliness amongst developers. And in order to do that, all Palm has to do is look at its past — it had developers and apps long before apps were the new black. It needs to get the number of apps up from its woeful 800 to a more respectable number — say, 10,000. It should start by looking at the top 1,000 apps on the iPhone App Store and get them onto webOS. And if it means actually paying developers to keep supporting the platform, so be it. The good news is that the company knows this. Investor Anderson told Bloomberg: “We have to establish a very strong developer ecosystem…a critical mass of very high-quality third-party applications.”

Third, it needs to get over its Apple complex. CEO Jon Rubenstein and other Apple alums who walk the hallways of Palm need to get over their fixation with Apple and Steve Jobs. You guys are not Steve and your company isn’t Apple. What you are is Palm, a once-iconic PDA maker with decent developer support and a brand that is as hip as Fred Perry. The good news is that Fred Perry is hot again. And seriously guys, stop taking media relationship tips from Apple. It is virtually impossible to even get anyone from your company on the phone anymore, including your CEO. That elusiveness doesn’t work for a company that’s having a tough time getting market traction, doesn’t have the story or the products. You needs to get the media on your side, which means talking to the folks who live and breathe this smartphone stuff.

These tips aside, the company needs to show more urgency or it will continue to lose relevance in this high-stakes war.